Big Bank Chiefs Must Meet Higher Standards, Curry Says

Heads of the biggest U.S. banks are
being asked to meet higher conduct standards separate from the
Volcker rule and Basel III capital requirements, said
Comptroller of the Currency Thomas Curry.

The regulator of national banks said in an interview that
his agency is operating by a new “internal written framework”
to guide its bank supervisors and the banks’ leaders to insist
on the “highest standards” in corporate governance and risk
management.

“The performance is not just the gentleman’s C of the
college days, but really we expect As, excellence,” Curry said,
adding that these are informal expectations directed by the
Office of the Comptroller of the Currency’s large-bank
supervision arm. “There’s a balance here between the rulebook
versus the art and the judgment of supervision, and this falls
into the category of supervisory judgment.”

In several speeches since he became comptroller in April,
Curry has cautioned lenders about practices such as excessively
releasing capital from loss reserves to bolster earnings. In his
first speech since the re-election of President Barack Obama,
Curry said today at a Clearing House conference in New York that
the OCC intends to ensure big banks don’t “sow the seeds of the
next crisis.”

“With respect to our large banks, we have raised the bar
for what we expect of senior management and independent
directors,” Curry told the financial-industry group. “We have
been very specific in our conversations about it with management
and independent directors.”

Risk Focus

Curry, who has focused on risk management in five of his
last six speeches, said the OCC won’t accept audits and risk-
management that’s “simply satisfactory.”

The OCC will also have higher expectations of bank
directors, he said.

“Independent directors must be able to challenge
management in a credible way,” and they’re expected to “set a
clear direction for their institutions,” Curry said in the
speech.

Curry’s agency and other banking regulators recently
postponed implementation of the Basel III capital rules that
were initially meant to be in place Jan. 1.

“I think we need to get the rules in place as quickly as
possible,” Curry told reporters after the speech, declining to
be more specific about timing. “We need good rules, but we need
to do this quickly. A lot of the uncertainty that we’ve seen is
really due to not knowing the rules of the road.”

Community Banks

As for community banks’ request that they be removed from
the future capital requirements, Curry pointed out that it was
the OCC that inserted a question into the proposed rule asking
whether those small banks should be subject to Basel III’s new
risk-weighting of assets. He added that “strong capital is
important” and the need “transcends all sizes and types of
institutions.”

Curry also declined to predict the timing of a final
Volcker rule to ban banks’ proprietary trading.

“There’s a lot of work going on behind the scenes,” he
said, and the many agencies involved -- including markets
regulators -- mean a wide range of views. “We do come from
different places. Sometimes that slows things down.”